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BRUSSELS—U.S. and European Union negotiators are scrambling to reach a deal on new "safe harbor" data-privacy protections in advance of a Tuesday deadline, hoping to stave off a potentially significant breakdown in trans-Atlantic commerce.

Washington and Brussels said they hoped to reach a deal in time, but some issues remained unresolved Saturday, with the EU seeking more clarity from the U.S. on transparency and on the oversight of data transfers and privacy protections.

The European Union's highest court in October struck down the previous framework, known as Safe Harbor, over concerns that Europeans' data wasn't sufficiently protected in the U.S. and could fall into the hands of intelligence services.

If an agreement on the new framework isn't reached within days, the differences between the U.S. and EU could quickly widen, negotiators and corporate leaders fear, potentially upending many types of trans-Atlantic transactions.

Without the new safe-harbor accord, for example, data-privacy regulators in European countries could move to invalidate some of the alternative legal methods that U.S. firms have been employing, such as so-called model contract clauses, to enable them to keep handling Europeans' data.

Apple Inc. and Microsoft Corp. are among the big companies that say they have been using the stringent terms written into individual contracts.

At stake are billions of dollars in online advertising and other business, as well as more mundane matters such as the storage of human-resources documents about European employees.

Even more than big firms, small and midsize U.S. companies are worried that a protracted dispute could undermine their operations.

The negotiations appeared to get a boost this past week when the U.S. Senate Judiciary Committee approved legislation that would give many citizens of other countries the ability to sue in U.S. court over data-privacy breaches. The bipartisan vote signaled the legislation could move through Congress relatively quickly.

But another major sticking point remains over whether the U.S. has provided enough information about the way it collects EU citizens' data for intelligence purposes.

Robert Litt, general counsel for the Office of the Director of National Intelligence, said Friday that the U.S. has explained to its European counterparts "in great detail" about the legal framework governing the U.S. national security services, including the privacy protections they afford and the oversight they receive.

As of Saturday, officials said they were still seeking more clarity on the exceptional circumstances in which some bulk collection of data might still be allowed for national security purposes.

EU spokesman Christian Wigand said at a Friday briefing that "intense" negotiations are continuing. "We need an arrangement that lives up to the benchmarks that have been set" by the European Court of Justice ruling in September that invalidated the 15-year-old Safe Harbor agreement, Mr. Wigand said.

Mr. Litt said he believed the U.S. has provided enough information to prove that its privacy protections are essentially equivalent to those in Europe. He said there were some cases where targeted intelligence gathering might not be possible, and bulk data-gathering might be needed—for example, when the U.S. and its allies have deployed troops in harm's way.

"That's the kind of situation where tailored, targeted collection might not be feasible," said Mr. Litt. "But I don't think that even the European court decision says bulk collection is never possible—it just has to be necessary and proportionate in light of the circumstances."

Two people familiar with the talks said the U.S. had proposed installing an ombudsman to handle individual complaints and requests for information about alleged privacy breaches by the U.S. government. The individual would be part of the State Department, making that person independent from the national security services.

The EU wants to ensure that such an ombudsman would take the complaints seriously and wouldn't simply be for show, one of the people said.

But there are limits to the feedback the ombudsman could give individuals without revealing too much about national intelligence operations, the other person said.

Commercial complains under the new framework would continue to be handled through alternative dispute mechanisms, the Federal Trade Commission and the Commerce Department.

U.S. authorities have previously said they received only four commercial complaints from European national data protection authorities over the span of more than a decade under the previous Safe Harbor framework.

Another proposal under consideration would allow EU privacy regulators to investigate complaints, according to a personal familiar with the matter.

The privacy regulators of the 28 EU member states had granted the U.S. and the EU until the end of January to agree to a new framework. Without legally-binding assurances on personal information-gathering by U.S. national security services under a new safe-harbor framework, it is unlikely the data protection authorities would continue to accept alternative methods such as the model contract approach.

Even if the EU and U.S. do reach an understanding in the coming days, it could take months to become legally binding in Europe, since the EU would still need formal approval from various EU and national officials.

(END) Dow Jones Newswires

January 31, 2016 19:25 ET (00:25 GMT)

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